Menahga City Council ponders local sales tax
The Menahga City Council is considering a local sales tax as a new stream of revenue.
Council member Karol Andreasen broached the idea at their Oct. 8 meeting.
“I lost some sleep wondering how the city can generate funds. We can’t seem to get a business in here that would generate more income for the city,” she said. “I don’t like to see the city owing money.”
Andreasen and City Administrator Curt Kreklau researched the possibility of imposing a local sales tax.
“In order for us to charge a sales tax, we have to have a project in mind,” Andreasen said, such as new squad cars and a fire truck.
Andreasen pointed out that Perham, Park Rapids, Detroit Lakes, Wadena, Sebeka and Baxter all charge local sales tax, either 7.375 or 7.875%.
“So I said, ‘Why can’t we do that?’” she asked.
She suggested a 2% tax as a way to capture revenue from tourists passing through town to buy gas, liquor and groceries.
Using an online sales tax calculator, Andreasen found that $206,000 in off-sale liquor sales, for example, would generate $15,604 in total taxes. The city would get 2% of that amount.
The Minnesota Department of Revenue (DOR) administers all general local sales tax, collecting it and redistributing it the city.
Council member Tim Ellingson speculated it would scare a lot of shoppers away from Menahga. “I don’t frequent the places that have their own sales taxes added on. They are already high enough,” he said of existing taxes.
Police Chief Adam Gunderson noted that Minnesota sales tax is 6.875% and Wadena County’s sales tax is 0.5%.
“How can we grow our population, if we don’t do something to help it?” Andreasen said, reminding the council there is a need for more housing, child care, employment and entrepreneurship. “Two cents on a dollar would sure as heck be worth it.”
Council member Art Huebner wondered how much of the local tax would be paid by residents.
Andreasen noted how locals willingly give their time and dollars to worthwhile organizations. “We’re worthwhile, aren’t we? And I think they’ll benefit from it. And also, they hopefully won’t have a tax (levy) increase.”
Sales taxes can go away, she added. “Once you’re done with your projects, you don’t have to have a sales tax any longer.”
“I’ve never seen them go away,” Huebner said, chuckling.
Andreasen said, if residents see the benefits of the projects, they will be sold on a local sales tax.
We have a lot of seniors, Andreasen said. “What if we offered them a ride service to the clinic, stores, wherever? If we offered them more businesses to go to, they would probably shop here more.”
Huebner said he wasn’t opposed to the idea, but not now.
According to DOR, the council must pass a resolution with the following:
proposed tax rate,
a detailed description of up to five capital projects,
documentation of how each project will provide an economic benefit to residents, businesses and visitors from outside the jurisdiction,
the total amount of revenue to be raised for each project
The estimated length of time the tax will be in effect.
The Minnesota Legislature must authorize the new tax. Voters must approve the referendum to impose a tax.
“I don’t like paying taxes, but I sure do like to see the proceeds that come from it, and I think they would, too,” Andreasen said.
During budget planning, she asked the council to keep the sales tax in mind as a possibility to keep the levy down.
The council tabled further discussion until January 2020.